Q. I failed to take out my Required Minimum Distribution (RMD) from my IRA before the end of 2012. I sold some stock in my IRA meant for the RMD at the end of November but it remained in the account as cash. It should have been transferred to my checking account. When I discovered the error on Feb. 2, I quickly took the RMD. Must I send in a 50 percent penalty fee with my request for a waiver (Form 5329)? One instruction I read said to just enter “RC” on line 52. I’ve always been financially responsible before. This is my one and only error.
— Never Been Late

A.Failing to take a required Minimum distribution from an IRA can be one of the most expensive errors you can make.

You’re correct in stating that there is a 50 percent penalty for any amount you were supposed to take.

But you may be in luck.

“The IRS can fully waive the 50 percent penalty if the IRA account owner can show the shortfall in their IRS distribution was due to a reasonable error,” said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights. “In addition, the IRA account holder must also take reasonable steps to correct the shortfall.”

Maye said yes, you need to fill out IRS Form 5329, and then attach a letter of explanation describing the reasons you failed to take the RMD, and explain what you’ve done to correct it.

“The IRS Form 5329 instructions are to write ‘RC’ and the amount you want waived in parenthesis on the dotted line next to line 52, not on line 52 itself,” he said. “The penalty is calculated on line 53 and goes on line 58 on Form 1040.”

Also, the penalty is payable when the return is filed. Maye said the IRS will then review the waiver request and at its discretion can waive the penalty.

Maye suggests to make sure this never happens again, ask your IRA custodian to automatically transfer your RMD into your checking account each year. you’ll still have to make sure to sell enough investments that you have the right amount of cash to use for the RMD each year.